DEPRECIATION

Reduction in the value of the fixed assets Decrease in the value of the asset due to its use Gradual & permanent decrease in the value of an asset from any cause whatsoever

FEATURES OF DEPRECIATION
Decrease in value Permanent decrease Gradual decrease Reasons of decrease (use of the asset, passing of time, new inventions etc)

METHODS OF DEPRECIAION
SLM Straight Line Method / Fixed Installment Method. Amount of depreciation remains same every year till the asset value gets exhausted Formula used is (Total Cost Scrap Value) / No. of years of useful life WDV/RBM Written Down Value / Reducing Balance Method Amount of depreciation is not fixed but depends upon the opening WDV. It is also known as Diminishing Balance Method Formula used is (Opening WDV * % age of Depreciation)

MAJOR ADJUSTMENTS
Purchase of Asset (DrAsset & Cr Cash) Sale of Asset (DrCash & Cr Asset) Charge of Depreciation (Dr Deprn & Cr. Asset) Transfer of Depreciation to P/L A/c (Dr.. P/L A/c & Cr. Deprn A/c) Calculation of profit / loss on sale of asset

Problem No.1
Charge depreciation @10% on SLM and prepare machinery account as on March 2009 & March 2010. Also prepare depreciation a/c. Show your workings. Other information is as follows Machinery Z was purchased on 1.4.2008 for Rs.100000/ Machinery Y was purchased on 1.4.2009 for Rs.200000/-

Problem No.2
Charge depreciation @10% on RBM and prepare machinery account as on March 2009 & March 2010. Also prepare depreciation a/c. Show your workings. Other information is as follows Machinery Z was purchased on 1.4.2008 for Rs.100000/ Machinery Y was purchased on 1.4.2009 for Rs.200000/ Machinery Z was sold on 1.4.2009 for Rs.80000/-

Problem No.3
X Ltd purchased a second hand machine on 1.4.2008 for Rs.500000/- and spent Rs.100000/- on its repairs. Depreciation is to be provided @10% p.a. as per SLM. This machine is sold for Rs.450000/- on 1.4.10. Calculate the profit / loss on sale of machine, show depreciation a/c & machinery A/c in the books of accounts. Working notes should also form part of your answer.

Problem No. 4 X ltd has imported a machine on July 1, 2002 for Rs.128000/- paid customs duty and freight Rs.64000/- and incurred erection charges Rs.48000/Another local machinery costing Rs.80000/- was purchased on January 1, 2003. On July 1, 2004 a portion of the imported machinery (value one third) got out of order and was sold for Rs.27840. Another machinery was purchased to replace the same for Rs.40000/Depreciation (FIM) to be calculated @20% p.a. Show the machinery A/c for 2002,2003 & 2004

Problem No.5 ABC Ltd have imported a machine on 1st July, 2000 for Rs.160000. They also paid customs duty & freight Rs.80000/- and incurred installation charges of Rs.60000/Another indigenous machinery costing Rs.100000/- was purchased on 1st January 2001 On 1st July, 2002, 1/3rd of the imported machinery was sold for Rs.34800 having become obsolete. Another machinery was purchased to replace the same for Rs.50000/Depreciation is to be charged @20% under WDV. Show machinery A/c for all the years